Medicare Advantage: The Future Model of Care

If you want to know where healthcare is headed, just look to Medicare Advantage.
 
Medicare Advantage Plans, sometimes called “Part C” or “MA Plans,” are offered by private organizations approved by Medicare. They’ve accomplished what in many ways, the public sector has struggled to do: cut healthcare costs while improving the quality of care.
 
What began as an alternative to fee-for-service Medicare plans has now seen its enrollment double in the last nine years. We expect enrollment in these plans to continue growing, partly because of recent steps the current administration has taken to incentivize patient enrollment in these privatized Medicare programs.
 
The new budget bill, signed on Feb. 9, 2018, after a several-hour government shutdown, includes new policies that further support Medicare Advantage plans:
  1. Medicare Advantage plans can now include social support or non-medical services in their benefits packages, such as home-delivered meals or transportation to the doctor’s office.
  2. The new budget includes the Chronic Care Act, which allows Medicare Advantage plans to tailor their coverage for patients and expand telehealth services.
 
Why the growing support for Medicare Advantage?
Ultimately, the government’s move to expand the purview of Medicare Advantage is driven by the three foundational shifts that have taken place under the new administration:
  1. Movement from an insurer marketplace governed by mandates to a system centered on choice
  2. Movement from a marketplace characterized by regulation to a marketplace guided by competition when it comes to coverage and pricing
  3. Movement from payments provided through subsidies to greater actuarial soundness.
 
Medicare Advantage plans have set a good example for the healthcare industry by providing greater transparency and accountability—and moving towards outcomes-based payments. The star-ratings system for plans has given consumers more transparency into their care and has pushed insurers to improve the quality of their services to compete.
 
CMS has already shown support for MA plans by offering insurers under the plans flexibility. Insurers like Anthem, Humana and WellCare have shown plans to expand their MA businesses through M&A activity—most recently, Humana through its deal with Walmart.
 
Now that the government has put this kind of support behind MA plans, we’re only going to see activity increase in volume.

The future of healthcare
In 2016, Medicare spending alone was 15 percent of the total federal budget. Moving more heavily to the Medicare Advantage model is the fastest way the government can reduce this large portion of federal spending. If more of the control over Medicare patient care is shifted to the private sector, costs can be condensed in ways that the public sector currently can’t accomplish. For example, the government is prohibited from negotiating drug prices, but a private insurer is not.

We can imagine a world where, over time, the private sector is charged with lowering care costs—with Medicare Advantage being a key way of doing so.

Impact for hospitals
As the Medicare Advantage patient population grows, hospitals will face lower reimbursements if they’re unable to demonstrate the value of their care. They’ll have to emphasize clinical quality to remain financially viable.

Hospitals will remain under pressure to redesign delivery and invest in innovation and digital technology with value-based payment. Despite incorporating value-based payment models over time, traditional Medicare for the most part continues to reimburse hospitals for each service the patient has (fee for service model). If a patient goes to the ER and incurs a $1,500 bill, Medicare will likely just pay it. The more services a patient undergoes, the more money Medicare will reimburse. However, if a patient in Medicare Advantage receives treatment at a hospital, the insurer first determines the service was clinically appropriate or medically necessary, and, if so, that it was priced appropriately.    

The new Medicare Advantage world will indeed accelerate the move to value-based care.

VC implications
Historically, VC-backed startups that make tools needed to improve care quality have sold their products to self-insured employers or directly to commercial insurers. The traditional Medicare patient population has remained largely untapped.
 
Now, though, Medicare Advantage presents tremendous opportunity for VC-backed startups that have the tools to predict when people need care and what type of care, before they even show symptoms. As the government pushes more people to Medicare Advantage, health-tech startups that can offer the tools needed to provide more effective care will be extremely valuable both to insurers and providers.

Medicare Advantage is the way forward, and health-tech startups—and their investors—can lead that way.  
 
We previewed this in the inaugural edition of BDO’s Healthcare Rx Newsletter. Read those insights here. And don’t miss the latest BDO News and insights–subscribe here.

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